3.3 Macroeconomic objectives questions for IB Economics

Explain how a central bank can use contractionary monetary policy to reduce inflation.

Using real-world examples, evaluate the effectiveness of monetary policy in reducing inflation.

Define the term capital indicated in bold in the text (Text A, paragraph 1).

Using information from Text A, paragraph 2, calculate the percentage change in Velmaris's real GDP between 2023 and 2024.

Sketch a production possibilities curve (PPC) diagram to show the effect of the destruction of capital on Velmaris's production possibilities (Text A, paragraph 1).

Using a PPC diagram, explain how hiring workers who lost their jobs to rebuild roads and power lines could lead to actual growth in Velmaris (Text A, paragraphs 2 and 3).

Using an AD/AS diagram, explain the likely effect of the earthquake on Velmaris's real GDP (Text A, paragraphs 1 and 2).

Using Table 1, calculate government spending on health as a percentage of GDP in 2023.

Using Table 1, calculate Saldova's government debt as a percentage of GDP in 2023.

Using Table 1, calculate the number of people aged 65 and over who were not vaccinated against flu in 2023.

Using an externalities diagram and the information provided, explain why flu vaccination among people aged 65 and over is underconsumed in Saldova.

Saldova normally sends people aged 65 and over a letter asking them to telephone their clinic to book a vaccination. In a trial, 20 000 people instead received a letter giving them an appointment with a date and time already booked, which they could change or cancel. The vaccination rate was 55 % among those who received the pre-booked appointment and 42 % among 20 000 people who received the standard letter.

Identify the form of choice architecture used in the pre-booked appointment letter.

Using the information in part (a)(v), calculate the additional number of people vaccinated as a result of sending the pre-booked appointment letter to 20 000 people.

Outline why the pre-booked appointment letter is an example of a nudge.

Explain two reasons, other than cost, why many people aged 65 and over in Saldova do not get vaccinated even though the vaccine is free.

Each flu-related hospital admission of a person aged 65 and over costs the health service SDL 9 500. Health economists estimate that every 100 additional vaccinations of people in this age group prevent 2 hospital admissions. Each vaccination costs the health service SDL 30.

Using your answer to part (a)(vi), calculate the net saving to the health service from the additional vaccinations in the trial. Ignore the cost of sending the letters.

The following options to raise flu vaccination among people aged 65 and over are being considered:

• sending pre-booked appointment letters to all 3.2 million people aged 65 and over, at a cost of SDL 1.20 per letter;

• a payment of SDL 20 to each person who is vaccinated; critics argue that it would mostly reward people who would have been vaccinated anyway;

• allowing pharmacies to give vaccinations, which would require training and payments to pharmacists;

• a public information campaign on television and radio costing SDL 6 million;

• making vaccination compulsory for residents of care homes, which some groups argue would breach individual rights.

The government has said that any new spending must be “affordable given the budget deficit”.

Using the information provided and your knowledge of economics, recommend a policy the government of Saldova could introduce to increase the flu vaccination rate among people aged 65 and over.

Using a production possibilities curve (PPC), distinguish between actual growth and growth in production possibilities.

Using real-world examples, discuss the view that economic growth always conflicts with environmental sustainability.

Define the term capital goods indicated in bold in the text (Text A, paragraph 2).

Using information from Table 1, calculate the opportunity cost, per unit of capital goods, of moving from combination B to combination D.

Using information from Table 1, determine whether the opportunity cost of capital goods would be higher or lower if the government aimed instead to move from combination D to combination F.

Using a PPC diagram, explain how the government's plan could affect Dranmoor's production possibilities in the future (Text A, paragraph 2).

Using an AD/AS diagram, explain how higher investment in capital goods could allow Dranmoor to grow without increasing inflation (Text A, paragraphs 1 and 2).

Using Table 1, calculate the percentage increase in Alvenna's real GDP per capita between 2015 and 2025.

Between 2015 and 2025, average annual consumption of rice per person in Alvenna rose from 140 kg to 148 kg. Over the same period, the average number of restaurant meals eaten per person rose from 12 to 30 a year. The relative prices of these goods changed little.

Using your answer to (a)(i), calculate the income elasticity of demand (YED) for rice.

Using your answer to (a)(i), calculate the YED for restaurant meals.

Using Table 1 and your answers to (a)(ii) and (a)(iii), explain how differences in YED help to explain the changes in the sectoral structure of Alvenna's economy.

Define the term structural unemployment.

Alvenna's labour force was 20 million in 2025 and is forecast to be 23 million in 2035. The government forecasts that agriculture's share of total employment will fall to 22 % by 2035.

Calculate the change in the number of workers employed in agriculture between 2025 and 2035.

Using a labour market diagram, explain the likely effect of slow growth in the demand for agricultural products on the wages of agricultural workers in Alvenna.

Outline why the low YED for agricultural products may widen the gap between rural and urban incomes in Alvenna.

The following information is available to the government of Alvenna:

• 38 % of agricultural workers have not completed primary school. Unemployment among recent rural migrants in the cities is 14 %, against a national average of 7 %.

• Vocational training centres in market towns could train 200 000 workers a year in construction, tourism, care work and information technology, at a cost of US$1200 per trainee.

• Rural roads and broadband would allow service firms such as call centres and food-processing plants to locate in rural areas. Estimated cost: US$4 billion over ten years.

• Relocation grants of US$800 per household would help rural families move to cities, where housing is already in short supply.

• A higher minimum support price for rice would raise farm incomes immediately, but would slow the movement of workers out of agriculture and add to government spending.

• Free secondary education in rural areas would raise skills over the long term; secondary enrolment in rural areas is 45 % against 85 % in cities.

Using the information provided and your knowledge of economics, recommend a policy the government of Alvenna could introduce to help workers move from agriculture into higher-productivity employment.